The millions of troubled U.S.
mortgage loans are overshadowing a reduction in delinquency
rates, according to Amherst Securities Group analyst Laurie Goodman.

The number of delinquencies, when borrowers miss two
mortgage payments for the first time, has decreased each month
since March, according to Fannie Mae and Freddie Mac, the
mortgage-finance companies under federal conservatorship that
own or guarantee more than half of the $11 trillion U.S. home
mortgage market. This development provides trading opportunities
in mortgage-backed securities, according to the July 30 Amherst
Mortgage Insight note.

Still, about one in seven homeowners is missing mortgage
payments, and about 7 million loans will default, Goodman said
today in a radio interview with Tom Keene on “Bloomberg
Surveillance.”

“The housing market is by no means healthy,” Goodman
said. “The big problem is you have so many underwater
mortgages, and you have so many mortgages that are already
delinquent that haven’t been liquidated, which just causes this
huge overhang.”

The rate of delinquent mortgages has decreased as lenders
modify loans to help borrowers make payments, Goodman said. The
number of delinquent loans reported by Fannie Mae stood at 5.15
percent in May and has been declining since a peak of 5.59
percent in February.

In the long run, she said, most of these modifications
ultimately fail.

“In order to have a successful modification program, at
the end of the day you’re going to have to write down
principle,” Goodman said.

U.S. housing prices will remain flat and could fall 5 to 7
percent, depending on how quickly the housing overhang hits the
market if the delinquent mortgages default, Goodman said.

Returning to a more stable housing market is going to take
“years and years and years,” Goodman said.